National Penn follows the money – it's own money, to Allentown

National Penn Bancshares' decision to move its headquarters to Allentown was a milestone in the redevelopment of the city's downtown. It gave instant credibility to developer J.B. Reilly's ambitious plan — financed in part by National Penn — to erect a complex of office, hotel and apartment buildings around a new professional hockey arena.

So it might seem natural that National Penn CEO Scott Fainor would recall the momentous occasion when he made up his mind to go ahead with the big move.

Only, Fainor said he doesn't recall the occasion at all — because there wasn't one.

"It didn't happen," the affable banker said.

Rather, the decision to move the headquarters from Boyertown, Berks County, was so entwined in its other dealings with Reilly and his company, City Center Investment Corp., that it took shape gradually. By the time decision was official, it felt like old news to someone like Fainor, who was involved in the process from the very beginning.

"It was a bunch of smaller pieces of the puzzle coming together … a series of conversations and meetings over at least a year," he said.

The announcement came in mid-October. National Penn, whose $6 billion in deposits and 119 branches in Pennsylvania make it the state's fourth-largest bank, would bring 275 employees to a new office tower called Two City Center, built on the site of the former First National Bank building at downtown's main intersection at Seventh and Hamilton streets.

For the first time in a quarter century, a major financial institution would be based in Allentown, giving credence to city officials who predicted its controversial tax zone and hockey arena project would breathe new life into Allentown's struggling urban core.

"I think this represents a tipping point for Allentown's downtown," Mayor Ed Pawlowski said at the time. "Major corporations are again gaining confidence in Allentown. I expect this to be the first of many similar developments … This is good for the downtown, good for the city and good for the whole region."

To accommodate National Penn, Reilly had to boost the height of Two City Center to 11 stories from six, making it the second tallest building in downtown Allentown, behind the 23-story-tall PPL tower. Of course, Fainor was intimately familiar with the change in plans, since his bank had to perform its due diligence before deciding to help to fund the project.

Penn's all-in approach to the redevelopment of downtown Allentown has raised a few eyebrows. From Fainor's perspective, his bank is backing up its talk with action.

"It goes right to our vision. We want to be the most highly regarded bank in the regions we serve," he continued. "How do you do that without taking a leadership role? You can't."

For Fainor, National Penn's move from Boyertown, where the bank has been based since its founding a decade after the Civil War, has personal significance. Fainor is a Salisbury Township resident who grew up in the Alton Park neighborhood of Allentown and attended Allen High.

In his youth, he and Reilly played pick-up basketball together. Later, he built his banking resume in Allentown, working at a number of banks in the city before taking the top job at National Penn.

But the real reason for National Penn's involvement in Allentown, Fainor said, is that it makes good business sense.

The bank's center of gravity has shifted to the Lehigh Valley in recent years, particularly with its $464 million acquisition of KNBT Bank in 2008. Today, it has $1.6 billion in deposits in Lehigh and Northampton counties, or a 13.8 percent market share, second only to Wells Fargo, according to the Federal Deposit Insurance Corp.

What's more, Fainor said, National Penn's loans to City Center Investment are relatively conservative thanks to the unique public-private partnership on which they are based.

The building boom is being underwritten by Allentown's 127-acre Neighborhood Improvement Zone, which was established through legislation written by another of Reilly's friends, state Sen. Pat Browne, R-Lehigh. The legislation, signed into law by Gov. Ed Rendell in 2009, allows property owners to use most of the new development-generated tax money to cover their construction costs.

Chief among the resulting projects under way is the $272 million hockey arena complex. It includes an 8,500-seat hockey arena, a 180-room hotel and One City Center, scheduled to open by August 2014. Of the three banks that pledged the initial $35 million to cover the cost of hockey arena site preparation, National Penn made the biggest investment: $22.5 million.

Subsequently, the bank's decision to occupy the top half of Two City Center — which City Center Investment expects to finish in 2014 — accelerated plans for yet another office building, called Three City Center. (That's because National Penn bumped Lehigh Gas Corp., which originally was slated to be City Center Two's primary tenant, occupying up to four floors. Now Lehigh Gas, whose owner, Joe Topper, is a partner with Reilly in City Center Investment, is waiting for Three City Center to be built. Reilly has said the five-story Three will be in the planning stage as Two is built.)

Fainor says he believes National Penn's move to Allentown will give other businesses confidence to make a bet on downtown.

"We think we can be a catalyst," he said.

Site preparation for Two City Center is well under way. At three times the size of the old 106,000-square-foot bank building it is replacing, Two City Center will be nearly twice as tall and use up more of the lot, covering most of the plaza in front. The red brick and glass building will have limestone accents designed to make it compatible with surrounding architecture, including the Dime Bank building across the street, which is being incorporated into the arena complex.

"This is what banks should do," Fainor said. "We're doing what's right for us, but were also taking advantage of an opportunity … that will lead to future growth."